Cash-Secured Puts Position Established in Cigna Corporation

A new position was established in Cigna Corp. (ticker CI) by selling two August 20th, 2021 100% Cash-Secured Put options at the $195.00 strike price at $2.30 when the price of Cigna stock was at $203.04 per share.  This is a moderately conservative position since the probability of assignment on the options expiration date was 73.4% when this position was established. 

The 30.6 Implied Volatility for these Cigna Put options was attractive to the Covered Calls Advisor since it is well above the current S&P 500 Volatility Index (VIX) of 17.5.   So the $458.66 ($2.30 per share x 200 shares - $1.34 commission) is a nice premium to receive for these out-of-the-money (i.e. strike price below the current stock price) Put options.  Importantly, Cigna reported their 2nd quarter earnings this morning and the stock had tanked by 12.3% when this transaction was made.  The steep decline was primarily in response to Cigna's news that its previous estimate that Covid would impact FY2021 earnings per share by $1.25 was increased to $2.50.  But on the other hand, this 2Q earnings report exceeded both revenue and earnings estimates and despite the Covid impact news, previous FY2021 earnings estimates were maintained at $20.20 (a P/E ratio of 10.1 which compares favorably to their prior 5-year average of 13) and the revenue estimate was increased from at least $166 billion to at least $170 billion. So the Covered Calls Advisor believes today's sell-off is an over-reaction, so a Cash-Secured Puts position was established.   

As detailed below, for this new Cigna Cash-Secured Puts position there is potential for a +1.2% absolute return in 16 days (equivalent to a +27.1% annualized return-on-investment).  


Cigna Corp. (CI) -- New 100% Cash-Secured Puts Position
The transaction today was as follows:
08/05/2021  Sold 2 Cigna August 20th, 2021 $195.00 100% Cash-Secured Put options @ $2.30 per share.

The Covered Calls Advisor does not use margin, so the detailed information on this position and the potential result detailed below reflect that this position was established using 100% cash securitization for the two Put options sold.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $38,538.66
= ($195.00 - $2.30) * 200 shares + $1.34 commission

Net Profit:
(a) Options Income: +$458.66
= ($2.30 *200 shares) - $1.34 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Cigna is above $195.00 strike price at the August 20th expiration): +$0.00
= ($195.00 - $195.00) * 200 shares

Total Net Profit (If Cigna stock price is above $195.00 strike price at options expiration): +$506.66
= (+$458.66 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return (If Cigna stock price is above $195.00 strike price at the Aug 20th options expiration) : +1.2%
= +$458.66/$38,538.66
Annualized Return: +27.1%
= (+$458.66/$38,538.66) * (365/16 days)

The downside 'breakeven price' at expiration is at $192.70 ($195.00 - $2.30), which is 5.1% below the current market price of $203.04.